MHC Class I molecules are the major receptors for viral peptides and serve as targets for specific cytotoxic T lymphocytes. HIV-1 specifically decreased activity of an MHC class I gene promoter by up to 12-fold. Repression is mediated by the HIV-1 Tat protein derived from a spliced viral transcript (two-exon Tat), identifying a novel activity for two-exon Tat, distinct from the transactivation of the HIV LTR common to both one-exon and two-exon Tat. Tat represses class I transcription through a direct interaction with the class I promoter. Tat repression can be modulated by strong, upstream enhancer elements. Mapping of functional domains of the Tat protein demonstrates that repression and activation are mediated by distinct and separable domains. Fine mapping of the second exon has localized a segment between amino acids 80 and 86 as essential for repression. Furthermore, a glutamine-rich domain, between 57 and 67 also seems to participate in mediating repression. Elimination of the cysteine- rich domain which is necessary for transactivation does not abrogate repression. However, a central residue shown to be necessary for the interaction of Tat with TBP is necessary for both transactivation and repression.